openpolitics.com

Trickle Down? Not Now, and Not for a While at Best (Wonkish)

It’s nonsense, of course. Think of the motivation: lots of companies are raising wages at least a bit in the face of tight labor markets; pretending that it’s because of the tax cut is a cheap way to curry favor with an administration that has no hesitation about using regulatory and antitrust decisions to reward friends and punish enemies. It’s basically Carrier all over: make a Trump-friendly splash by declaring that he persuaded you to save jobs, then lay off lots of workers after the cameras have moved on.

.. even if you believe economic analyses that suggest corporate tax cuts are good for wages, it shouldn’t happen right away. Any trickle-down should come about because the tax cuts lead to higher investment, which leads over time to a larger capital stock – and it’s the increase in the capital stock, which may take many years, that leads to the wage rise.

.. For a variety of reasons it would take a number of years for the capital stock to rise to its long-run level. And in the short run we wouldn’t expect wages to rise at all. Certainly not in the first week after the tax cut!

.. So if you suspect that these corporate announcements are political theater, not real economic events, the very models tax-cut enthusiasts like to cite back you up.